Business Unusual

Sirius Aims to Modernize World of Radio; Advertising and Commuting Become One in the Same; Alfy.com Reaches Out to Preschool Net Users

Aired August 6, 2000 - 6:30 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

RHONDA SCHAFFLER, HOST: Ahead on BUSINESS UNUSUAL, a company called Sirius that wants to do for radio what cable did for television. Also, how an unusual advertising scheme can cut down on your commuting costs; and tutoring the next e-generation, Alfy.com targets clientele just out of the cradle.

That's all ahead on BUSINESS UNUSUAL.

Welcome to BUSINESS UNUSUAL. I'm Rhonda Schaffler.

One of the latest bastions of old-fashioned technology is about to make a leap. Get ready for serious satellite radio, new technology that will bring 100 channels of commercial free music and talk directly to your car. Satellite radio promises to do for radio what cable did for TV and it's sure to rattle radio as we know it.

Lauren Thierry takes a look and listen.

(BEGIN VIDEOTAPE)

LAUREN THIERRY, CNN CORRESPONDENT (voice-over): Is your car radio losing its charm? Are you tired of static and noisy commercials? Are you losing your favorite station when you cross the state line? Well, if you get Sirius that might all be a thing of the past.

UNIDENTIFIED ANNOUNCER: You have to understand, it wasn't my fault. I didn't know.

DAVID MARGOLESE, CHAIRMAN & CEO, SIRIUS SATELLITE RADIO: Radio sucks. I mean the fact of the matter is that when you're listening to radio and the commercials come on, what do you do? You're surfing. You're hitting that button. You're pre-scanning. You're gone.

THIERRY: David Margolese started building Sirius satellite radio, formerly CD Radio, a decade ago. He brought $25 million of his own to the project, money he made starting two companies in the '80s. It took seven years to refine the technology that would win FCC approval then three more years to build a business model and raise financing.

Today, with one satellite deployed and two more to launch this fall, Sirius is on its way. By the time the service debuts at the end of the year, Margolese will have raised and spent $1.5 billion.

MARGOLESE: The idea is big but it's no bigger than cellular in the '80s. This is the decade under which radio takes the next step forward and essentially goes where television went in the '70s when television went with cable and you got rid of the rabbit ears and the four channels and you went to a high quality picture, you went to all kinds of choice.

THIERRY: Pat St. John, programmer, personality and a veteran of New York's FM airwaves is part of a team creating 50 commercial free channels in 30 studios, all under one roof in New York City.

ST. JOHN: Commitment to commercial free music is absolutely huge. Our goal is not to get higher ratings so that we can charge more for our commercials. That is not our product, you know? The product here is not the commercials. The product really here is the music.

D.J. GRANDMASTER FLASH, SIRIUS SATELLITE RADIO: I think what this radio show is going to allow me to play a Japanese rap record or maybe play that third cut off the album that I think is funky as opposed to the one that was decided by an A&R person to be the dedicated single, you know? I could say well this is what I want to play, this is what I'm feeling. I'm gonna have fun.

THIERRY: Even superstars like Sting are signed up to create shows.

DAVE SIMMS (ph): This is MLB Radio, Dave Simms with you, Sirius satellite radio in New York City.

THIERRY: Sirius will also offer 50 talk channels and even radio theater like this SciFi Channel production.

UNIDENTIFIED ANNOUNCER: And why don't you open the door?

THIERRY: To bring the product to market, Margolese has struck deals with major auto makers to have the receiver technology built into new cars.

MARGOLESE: We expect that those cars within a very brief period of time are going to include the third radio band, the satellite band as standard equipment in every vehicle they manufacture. We're revenue sharing with them. A piece of whatever service revenue results from that listenership goes to our partners.

THIERRY: Retail deals have also been struck with Circuit City and Best Buy, where devices will be sold for around $200. Like cable TV, there will be a subscription fee of $9.95 a month.

MARGOLESE: People will pay for value and convenience if the dollar amount is nominal enough. THIERRY: Sirius is not the only satellite service coming to market at the end of 2000. XM Radio, located in Washington, D.C., is also in the race with G.M. and Honda as partners. But Margolese sees terrestrial radio as the true enemy.

MARGOLESE: The National Association of Broadcasters were not happy to see us develop this technology back in 1990 and managed to delay us for seven years before we were finally licensed.

DAVE WHARTON, SENIOR VICE PRESIDENT CORPORATE COMMUNICATIONS, NATIONAL ASSOCIATION OF BROADCASTERS: This is a national service. Ours is a local service and localism has always been the hallmark of the radio business. The fact is most people are pretty satisfied with their local radio service today and these folks have a few hurdles to overcome before they can realize some of their optimistic wishes.

WILLIAM KIDD, SATELLITE INDUSTRY ANALYST, C.E. UNTERBERG TOWBIN: Satellite radio is revolutionary. The biggest risk for the company are satellite failures. We still have two more in front of us. Signal risks, do the signal reach the radios well. The consumer roll out. Do the radios get manufactured well? Do they get on shelves in a timely fashion? And lastly it's the market acceptance. Do consumers really, when confronted with the decision to buy satellite radio, do they sign up?

THIERRY: Despite the hurdles, Margolese is comfortable. Sirius only needs one percent of the 200 million car market to break even. On the verge of launching his third billion dollar company, Margolese is calm.

MARGOLESE: In our lives we have the illusion of a certain degree of control over things. And then there are those things that you don't even have the illusion of any degree of control over. And launching a satellite is one of those things. And when you're sitting there and it's three, two, one, you know that, you know, it's got nothing to do with you at that point.

So it is what it is and you just go home and you work out and you eat dinner and you go to bed and you don't worry about it. And that's my attitude.

SCHAFFLER: Just ahead, vinyl interiors are a thing of the past for car makers, but vinyl exteriors look like a money maker.

And later in the show, how this man has created a successful business by catching his clientele when they're most impressionable, before the age of 8, coming up on BUSINESS UNUSUAL.

(COMMERCIAL BREAK) SCHAFFLER: There's a new way to turn your hard daily commute into hard cash. All you have to do is rent out space on the side of your car for advertising. Dan Shifrin came up with the idea for his company while sitting in traffic. And now, as Gayla Hope reports from our San Francisco bureau, consumers, advertisers and Shifrin are all cashing in on his vinyl track to success.

(BEGIN VIDEOTAPE)

GAYLA HOPE, CNN CORRESPONDENT (voice-over): How would you like to make money driving your car around town just following your daily routine? That's just what these drivers are doing.

ADRIENNE KOLOWICH: I actually have another little part-time job which I was able to quit and spend more time with my kids because I'm doing this now. So I'm completely delighted.

MICHELE MULLER: I thought it was a really fun way to make some extra money and pay off my credit cards.

DANIEL SHIFRIN, PRESIDENT, AUTOWRAPS.COM: The materials should be coming in.

HOPE: Dan Shifrin's company, Autowraps.com, is transforming cars into vinyl wrapped billboards. The first cars hit the streets in February and he now has nearly 200 wrapped cars on the road. He calls it a win-win-win situation.

SHIFRIN: There's three parties involved. One is the driver, which is the consumer. They're getting anywhere between $200 and $400 a month to let us put this advertising on their car. The other party is the advertiser. They're making money because they're getting a very inexpensive form of advertising that is extremely effective. And then, of course, Autowraps picks up a dollar or two here or there.

HOPE: Autowraps is picking up an average of about $250,000 a month and that's on the rise. Advertisers pay Shifrin $1,000 to $2,000 per car. That's cheap compared to billboards.

SHIFRIN: For one billboard on the 101 you can get 30 cars for that amount of money.

HOPE: Volkswagen Bugs and SUVs are favorites of advertisers. One's cute and the others are big. But all cars are considered, depending on the miles driven or the routes taken every day. Advertisers are targeting particular demographics. Autowrap's list of more than 20 advertisers is expanding daily.

SHIFRIN: Just today we had, you know, we got a call from Web TV, Microsoft Web TV that they are going to be doing a program with us. We're actually launching with Kraft California Pizza Kitchen in the near future.

HOPE: Two new companies recently signed for 180 cars each and Dreyer's (ph) ice cream just resigned for next year. DAVE RITTERBUSH, DIRECTOR OF MARKETING, DREYERS GRAND ICE CREAM: As we look about traditional media, you're finding a greater need to use more and more untraditional ways to reach so many consumers as their lifestyles change.

HOPE: For some extra attention, cars with the same ads drive through town in tandem like these two cruising a crowded fisherman's wharf. Most perspective clients hear about Autowrap through the Internet and the company's Web site is filling up with anxious wrapees.

MARIANNE FARRELL, VICE PRESIDENT OPERATIONS, AUTOWRAPS.COM: At any given moment I could probably have between 3,500 and 4,000 unread e-mails.

HOPE: Shifrin's wrapped cars do outsell standard billboards in one way. The cars have talking representatives to give out information about advertisers and Autowraps.com. Autowraps and advertisers are getting P.R. and the drivers are getting something they enjoy.

HOPE (on camera): The biggest challenge so far is getting cars wrapped fast enough to keep up with demand. Shifrin says the waiting list has topped more than 20,000.

Gayla Hope, CNN Financial News, San Francisco.

(END VIDEOTAPE)

SCHAFFLER: Coming up, how this entrepreneur took her love for beauty and turned it into a small empire, next.

(COMMERCIAL BREAK)

SCHAFFLER: She's one of Canada's leading businesswomen, ruling a world of beauty that includes a line of cosmetics and skin care products, several fragrances and two popular spas.

Kitty Pilgrim tells us how Canadian cosmetics diva Lise Watier is taking her act on the road.

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KITTY PILGRIM, CNN CORRESPONDENT (voice-over): She looks more like a beauty queen than a magnate, but Lise Watier is both. This event at Montreal's Olympic Park honors her achievement as founder and CEO of Lise Watier Cosmetics.

LISE WATIER, CEO, LISE WATIER COSMETIQUES: The years I have always had two sources of motivation, those who believed in me and provided me with the strength needed to go on and those who didn't. I had to prove those wrong. PILGRIM: Watier has built a business empire while proving her detractors wrong.

MARIE-LISE ANDRADE, BRAND MANAGER, LISE WATIER COSMETIQUES: My mother is very determined. I think that's her greatest quality. She'll go all the way to really realize her dream.

WATIER: I was fascinated by what she did for women around her and it just paved the way to what I would do.

PILGRIM: Watier always loved makeup and practiced on her friends at school.

WATIER: I would do their makeup, I would cut their hair. I was very sure of myself. I could make them beautiful.

PILGRIM: Self-confidence and beauty led to her first modeling job. Soon she became a popular host on a woman's television magazine show.

WATIER: I addressed all problems women had about education, about beauty and with this I built my reputation.

PILGRIM: Even though she had more celebrity than money, she felt it was the right time to try her wings.

WATIER: I had the spirit of an entrepreneur.

PILGRIM: The first entrepreneurial venture was a charm school where she taught etiquette and beauty.

WATIER: My philosophy was bring out the best in you, feel good with yourself. Everyone will feel good with you.

PILGRIM: Getting started was not easy. Few business people took the pretty young woman seriously.

WATIER: My very first product, it was skin care. It was a moisturizing milk, the very, very first one.

PILGRIM: Key to the process was finding a chemist who educated her and helped create a high quality product line.

WATIER: I discovered the aloe vera plant, all the properties it have and all the good side effects and the effects on skin.

PILGRIM: After failing to sell most department store buyers, she finally found one cosmetic buyer who appreciated the product and placed an order.

WATIER: It all started there with this woman and I'm still very, very thankful to her because she changed my life. PILGRIM: Today, there are more than 350 items in the line, sold at cosmetic counters that bear the brand name like this one at the Bay Store (ph) in Montreal.

WATIER: The raison d'etre of a product is to fulfill a need, to help someone feel better.

PILGRIM: The family of products now includes color as well as skin care and fragrances for both men and women. The line's signature perfume, Nieges, is Quebec's best selling fragrance. There are also two beauty institutes in Montreal and Quebec.

WATIER: I never compromised on quality and this is why instead of lasting six months it's been 27 years.

PILGRIM: The Montreal-based company is now a family affair. Watier's husband, Serge Rocehelo (ph), has signed on.

WATIER: I'm the idea person. He's the minister of finance.

PILGRIM: And her two daughters have come aboard. Lawyer Marie- Lise Andrade works as brand manager for makeup and skin care.

ANDRADE: I've lived with the business all my life so it's part of me. It's like my mother's other baby.

PILGRIM: Youngest daughter Nathalie earned an MBA and now serves as director of marketing.

NATHALIE WATIER, DIRECTOR OF MERCHANDISING, LISE WATIER COSMETIQUES: My goal is to revolutionize the way we sell cosmetics.

WATIER: The daughters have become the public image of the company, featured in ads and promotions. But they are also shaping the future with their own ideas.

NATHALIE WATIER: We're leaving from the one single white female image to the different types of personalities, different nationalities and more about lifestyles.

PILGRIM: With her dynasty in place, Watier is invading other countries. Beauty superstore Safora (ph) now sells the Nieges fragrance in France and the United States.

WATIER: My perfume is called Nieges, which means snow.

PILGRIM: The perfume with the cool image has received a warm reception, achieving best seller status in its first year in New York. Lise Watier ranks as Canada's top female entrepreneur. But the honor she receives means much more than business success.

WATIER: It's a recognition of love. I think I'm part of women's, I'm part of their lives and it's when I have a recognition, it's like someone telling me we love you. Go on with what you're doing. We are with you.

SCHAFFLER: Today's kids are wired and it's not just because of sugar intake. With cell phones, video games and computers a part of their daily lives, kids are increasingly tech literate. More and more companies have identified this as a high growth market. They're feeding the rise in demand for age appropriate content that's safe for under age consumers.

As Allan Dodds Frank reports, Alfy.com has raised the technology challenge while lowering the age of the target market by reaching out to preschool Internet users.

(BEGIN VIDEOTAPE)

ALLAN DODDS FRANK, CNN CORRESPONDENT (voice-over): Older folks may find the world of computers a bit intimidating. But children cannot wait to try to fly in cyberspace. Internet companies that cater to them hope to turn the novice users into frequent fliers.

DODDS FRANK: Twenty-eight-year-old Yaron Ben-Shaul feels a bond with the young consumers.

YARON BEN-SHAUL, CEO, ALFY.COM: I think I have a (UNINTELLIGIBLE) kid and I was all my life interested in kids' stuff.

DODDS FRANK: Yaron found a way to put his kid soul to good use. In 1998, he and two friends launched Alfy.com, an Internet portal and Web site which targets pre-schoolers and kids three years to eight years old.

BEN-SHAUL: The three founders, two of them, including myself, were in Israel and one was here.

DODDS FRANK: The founders set out to create a Web site that would not just be fun, but also educational, a safe place that children would enjoy and parents would appreciate.

UNIDENTIFIED CHILD: Why isn't this thing working?

DODDS FRANK: Yaron realized that kids needed help navigating the Internet and making it easier for the little ones would also make it more fun.

ROBYN KERNER, VICE PRESIDENT OF MARKETING, ALFY.COM: For the kids themselves, we want to take a page from the Nickelodeon book and say hey, it's the place I want to be. It's hip, it's cool. Alfy's my pal. I want to hang out with Alfy after school. He's my best friend.

ALFY: This is going to be no fun.

UNIDENTIFIED CHILD: You're wrong.

DODDS FRANK: Alfy's six-year-old vice president of fun, T.J. Wilson, keeps the company on target.

UNIDENTIFIED CHILD: Alfy?

ALFY: Tell us a little about yourself.

DODDS FRANK: Even Alfy's character and name were designed to help young users, a personality they can relate to and a short name kids can type. Alfy wants to reassure parents that their little ones are protected online while playing and having fun. The portal features the Alfy shield to lock kids in safe space.

KERNER: For parents, we really want it to be almost a seal of approval. Like it's fun, it's educational and it's good for my child.

DODDS FRANK: Alfy has grown from the original three partners to a staff of more than 80.

SAM PORAT, DIRECTOR OF STRATEGIC PLANNING, ALFY.COM: Kids spend $30 billion a year of their own money and influence their parents for another $120 billion or so.

DODDS FRANK: We asked some experts to test the site for us, my five-year-old twin daughters Catherine (ph) and Melissa (ph) and their pal Amanda (ph).

UNIDENTIFIED CHILDREN: Easy!

PORAT: I believe in Alfy and I believe in our market and our vision as a company and I think we're going to go up to the moon.

DODDS FRANK: Allan Dodds Frank, CNN Financial News, New York.

(END VIDEOTAPE)

SCHAFFLER: And that is BUSINESS UNUSUAL. This week we focused on how small ideas grow into big businesses. If you missed any of today's program, you can catch it on the Web. Just log onto cnnfn.com and click on business unusual.

I'm Rhonda Schaffler. Thanks for joining us. Good-bye from New York.

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